🔗 Share this article

What is your perceive our system of government functions? It could be similar to this. We elect MPs. They debate and pass bills. When a majority is secured, the bills pass into law. Legislation is maintained by the courts. That's it. However, that was how it operated in the past. Those days are over.

The Rise of Offshore Arbitration Panels

Nowadays, foreign corporations, or the billionaires who own them, can sue nation states for the laws they pass, at secret arbitration panels composed of corporate lawyers. Such disputes are held behind closed doors. Unlike our courts, these panels allow no opportunity to appeal or legal review. The general public are unable to file a case to them, and neither can our government, or even businesses based in this country. They are open exclusively to entities based overseas.

When a secret court rules that a legislative action may compromise the corporation’s anticipated profits, it may order compensation of hundreds of millions of pounds, running into billions.

These awards are based not on real financial harm but compensation the arbitrators determine the company could potentially have made. The administration could be forced to drop the legislation. It becomes discouraged from passing future laws in that area, due to the risk of facing litigation.

A Process Spiralling Out of Control

Historically high figures of cases are being filed, as corporations take cues from each other, and private equity finance suits for a share of a portion of the awards. The consequence? Democratic sovereignty and democratic governance are turning into prohibitively expensive.

The process is known as “investor-state dispute settlement” (ISDS). The reason it is allowed to trump domestic law and the rulings taken by legislatures is that this stipulation has been incorporated – without democratic mandate, and often in conditions of extreme secrecy – into trade treaties.

A Specific Case: The Whitehaven Coal Mine

Last year, activists secured a significant win at the high court. The justice ruled that plans to open the first major coal mine in the UK for a generation, in northwest England, were found to be unlawfully approved by the outgoing administration, which had accepted the questionable argument that the mine could have no consequence on our carbon budgets. The new government then withdrew the licence the previous administration had granted. Currently, this legal outcome faces being overturned by an offshore tribunal answering to only the companies petitioning it.

During August, a corporate entity whose final controllers are based in the offshore financial centre initiated proceedings against the UK government. Last week a arbitration panel in Washington DC was convened to consider the case.

The company is seeking compensation from the UK for the money it might have made if the mine had been permitted to commence operations. Citizens have no clear indication how much this sum represents. What legal team is representing it against the state? An elected representative, and previous senior legal advisor in the outgoing administration, that great patriot the MP. The government makes a decision, the national judiciary validates it, then a foreign company challenges it through an secretive arbitration panel, and a elected official acts on its behalf.

The Russian Case

On the same day that the court on the mining lawsuit was convened, it was revealed from a government response that the UK is also being sued under ISDS by a Russian billionaire, Mikhail Fridman. We know little of the case to date, but it is highly possible that he will utilise the ISDS mechanism to contest the penalties the UK enacted against him after the Russian aggression. He has already filed a claim against a small nation with similar intent, seeking a colossal sum: equivalent to half of government’s annual revenue. Included in the legal team representing him there? the wife of a former prime minister, spouse of the former British prime minister.

International law scholars believe that the EU’s hesitation in using frozen Russian assets as security for its aid for Ukraine arises from apprehension in Brussels that it could be subject to litigation in the ISDS tribunals, under a bilateral investment treaty. This remarkable, unaccountable authority over sovereign states could be blocking the money Ukraine desperately needs.

False Assurances and Growing Risks

We were assured that such things wouldn’t happen. In 2014, a former prime minister, promoting the most significant and hazardous of all such treaties, declared: “We’ve signed trade deal upon trade deal and we have never seen a case in the past.” An expert on this matter accused activists of “alarmism … the truth is, ISDS has little impact on the UK much”. The general impression appeared to be that exclusively weaker states had to worry about such legal actions. Predictions that “once firms grasp the power bestowed upon them, they will shift their focus from the vulnerable countries to the strong ones” were dismissed with general mockery.

That threat is now a reality. In the current period, oil and gas and resource corporations have lodged a historic level of claims against nations both wealthy and developing, contesting – similar to the Cumbrian coalmine – state efforts to stop climate breakdown. Firms have thus far won vast sums through ISDS, of which energy giants have secured the majority. That equates to the combined GDP